How NAFTA has Changed the American Workforce - Essay Example

How NAFTA has changed the American workforce How NAFTA has changed the American workforce [The name of the writer appears here] [The name of institution appears here] Abstract The purpose of this paper is to explain the impact and how NAFTA has changed the American workforce. During my research I found out that according to some, NAFTA has created an adverse impact on the employment of some workers and for some it has proven to be beneficial and the conclusion I reached to was, that the impact and the change NAFTA has brought has varied according to the type of skills, expertise and job the workforce is doing. In this report I will illustrate the negatives impacts of NAFTA on the American workforce which are more prominent and prevalent. Overview The North American Free Trade Agreement (NAFTA) continues to elicit heated debate in the U.S., Mexico and Canada, as an array of business groups, economists, trade unions and environmental groups spar over the ultimate impact of this trade accord. Because of its proximity to the Mexican border, California particularly Southern California stands to be one of the regions in the U.S. most affected by the treaty. NAFTA would lower the trade barriers that separate the U.S. from Canada and Mexico, its first- and third-largest trading partners, respectively. According to Futterman “Its proponents argue that the resulting free-trade zone would create the world's largest and richest market, representing 360 million consumers and $6 trillion in annual output, and would significantly increase America's global competitiveness. Opponents contend that NAFTA would accelerate an already-existing flow of jobs and business from the U.S. to Mexico and, by permitting manufacturers to operate under Mexico's presumably less-stringent pollution controls, wreak havoc on the North American environment. And while they acknowledge that the pact may produce some long-term economic benefits to all three trading partners, they point out that such benefits are of little solace to newly laid-off workers.” (Futterman, 1993) How NAFTA has affected the American workforce? Job losses and union management: According to Bureau of Labor Statistics “NAFTA's impact in the United States, however, has been often obscured by the "boom-and-bust" cycle that drove domestic consumption, investment, and speculation in the mid- and late 1990s. Between 1994 (when NAFTA was implemented) and 2000, total employment rose rapidly in the United States, causing overall unemployment to fall to record low levels. But unemployment began to rise early in 2001, and 2.4 million jobs were lost in the domestic economy between March 2001 and October 2003” (Bureau of Labor Statistics, 2003). These job losses have been primarily concentrated in the manufacturing sector, which has experienced a total decline of 2.4 million jobs since March 2001. As job growth has dried up in the economy, the underlying problems caused by U.S. trade deficits have become much more apparent, especially in manufacturing. NAFTA proponents have expected great benefits from this North American partnership since its enactment. The United States was expected to become more competitive in the global economy, and the George H. Bush administration anticipated the creation of 320,000 more jobs for the United States alone. Debatably, the State of Texas has reaped the most benefit from the agreement, and the economic boom of the 1990s has been attributed in part to NAFTA. But, even prior to the NAFTA agreement, opponents urged each country to realize that free trade would not only lead to economic gains, but could also lead to significant problems for labor standards, workers' rights, and union organizing drives. While I was reading the book The Labor Relations Process by Holley et al I understood that “The effect of NAFTA on union organizing drives is of particular concern to minorities and women. Situations that have a negative impact on America's organized workers have an exponential impact on the minority community. These individuals have a disproportionately higher number of jobs in the industries that are most affected by NAFTA. Additionally, these groups have a history of discrimination in the workplace, and therefore would have a greater need for the protections union membership is intended to provide. Collective bargaining emphasizes equal pay and fair treatment in the workplace, two things that are essential for women and minorities.” (Holley et al, 2004) Low wages and income inequality: As Mishel explained “NAFTA has also contributed to growing income inequality and to the declining relative wages of U.S. workers without college degree, who made up 72.1% of the workforce in 2001. NAFTA, however, is but one contributor to a larger process of globalization and growing structural trade deficits that has shaped the U.S. economy and society over the last few decades.” (Mishel et al. 2003) Rapid growth in U.S. trade and foreign investment as a share of U.S. gross domestic product (GDP) has played a large role in the growth of inequality in income distribution in the last 20 years. NAFTA has continued and accelerated international economic integration, and thus contributed to the growing tradeoffs that have accompanied this integration process. According to Mishel “The growth in U.S. trade and trade deficits has put downward pressure on the wages of workers without a college degree, especially those who have no formal education beyond a high school degree. This group includes most middle- and low-wage workers, including the 68.5% of the total workforce with the lowest pay, those earning a wage that is equal to 200% or less of poverty level wages in 2001.” (Mishel et al. 2003). In March 2000, the base year used for data, these workers earned wages of $16.93 or less per hour. (Scott, 2000) These U.S. workers bear the brunt of the costs and pressures of globalization. (Mishel et al. 2003,) A large and growing body of research has demonstrated that expanding trade has reduced the price of import-competing products and put downward pressure on the real wages of workers engaged in producing those goods. According to Scott “Trade, however, is also expected to increase the wages of the workers producing exports, but growing trade deficits have meant that the number of workers hurt by imports has exceeded the number who have benefited through increased exports. Because the United States tends to import goods that make intensive use of skills of less-educated workers in production, it is not surprising to find that the increasing openness of the U.S. economy to trade has reduced the wages of less-educated workers relative to other workers in the United States.” (Scott, 2001) Threat effects also arise when firms threaten to close plants and move them abroad while bargaining with workers over wages and working conditions. Employers' credible threats to relocate plants outsource portions of their operations, and purchase intermediate goods and services directly from foreign producers can have a substantial impact on workers' bargaining positions. The use of these kinds of threats is widespread. As Tonelson illustrated “A Wall Street Journal survey in 1992 reported that one-fourth of almost 500 American corporate executives polled admitted that they were "very likely" or "somewhat likely" to use NAFTA as a bargaining chip to hold down wages.” (Tonelson, 2000) According to a unique study by Bronfenbrenner of union organizing drives in 1993 though 1995, it was found that more than 50% of all employers made threats to close all or part of their plants during organizing drives (Bronfenbrenner 1997). This study also found that plant closing threats in National Labor Relations Board (NLRB) union certification elections nearly doubled following the implementation of NAFTA, and that threat rates were substantially higher in mobile industries, where employers can credibly threaten to shut down or move their operations in response to union activity. Perhaps the greatest danger to the U.S. economy from adopting NAFTA is that it will encourage American firms to seek a low-wage solution to the challenge of global competition. The Commission on the Skills of the American Workforce, led by Ira Magaziner, William Brock, and Ray Marshall, recently concluded that we face an historic strategic choice in how we respond to the global marketplace. One strategy - the “highskills, high-wage” path - competes by producing innovative high-quality goods efficiently so that they can be sold at high enough margins in the global marketplace to pay high wages and maintain U.S. living standards. This path requires the maintenance of correspondingly high levels of private and public investment to continually upgrade the quality of our capital and labor. NAFTA with globalization: According to Bureau of Labor Statistics “The U.S. economy created 21 million jobs between 1992 and March 2001” (Bureau of Labor Statistics, 2003). All of those gains are explained by growth in domestic consumption, investment, and government spending. The growth in the overall U.S. trade deficit eliminated production supported by three million jobs in the same period (Scott 2001). Thus, NAFTA and other sources of growing trade deficits were responsible for a change in the composition of employment, shifting workers from manufacturing to other sectors and, frequently, from good jobs to low-quality, low-pay work. According to Mishel “Since the onset of recession in early 2001, trade-displaced workers have been especially hard hit. Workers have experienced longer unemployment spells, and they have found it much more difficult to get new jobs. Many have concluded that their jobs in manufacturing will never come back. The growth of the trade deficit since early 2001 has contributed to an absolute decline of jobs, not just a shift in jobs from manufacturing to other sectors.” (Mishel, 2003) As U.S. Trade Deficit Review Commission illustrated “When trying to identify the causes behind trends such as the disappearance of manufacturing jobs, the rise in income inequality, and the decline in wages in the United States, NAFTA and growing trade deficits only provide part of the picture. Other major contributors include deregulation and privatization, declining rates of unionization, sustained high levels of unemployment, and technological change. While each of these factors has played some role, a large body of economic research has concluded that trade is responsible for at least 15% to 25% of the growth in wage inequality in the United States (U.S. Trade Deficit Review Commission 2000). In addition, trade also has indirect effects on wage inequality by contributing to many of these other causes. For example, the decline of the manufacturing sector attributable to increased globalization has resulted in a reduction in unionization rates, since unions represent a larger share of the workforce in this sector than in other sectors of the economy. Conclusion To meet the challenge of increasing global economic integration of which NAFTA is only one element - the United States must embark on a permanent and continuous upgrading of its labor force in conjunction with trade and industrial policies that provide support for high-wage job creation. The need to invest in the U.S. labor force goes way beyond aid to workers displaced by trade. The United States should be looking to the future, and toward a whole new labor-market process that starts in childhood and extends beyond retirement. References Bronfenbrenner, Kate (March 18, 1997) “We'll close! Plant closings, plant-closing threats, union organizing, and NAFTA.” Multinational Monitor, pp.8-13. Bureau of Labor Statistics (2003) “Producer Price Indexes” Washington, D.C.: U.S. Department of Labor. http://stats.bls.gov/ppi/home.htm Futterman, Susan (May 10, 1993) “NAFTA: boon or boondoggle?” North American Free Trade Agreement” Los Angeles Business Journal. Mishel, Lawrence, Jared Bernstein, and Heather Boushey (2003) “The State of Working America: 2002-03.” Cornell University Press, p. 134, 163, pp. 181-189. Scott, Robert E. (2000) “The Facts about Trade and Job Creation.” Issue Brief. Washington, D.C.; Economic Policy Institute. Scott, Robert E. (2001) “Fast Track to Lost Jobs: Trade Deficits and Manufacturing Decline Are the Legacies of NAFTA and the WTO” Briefing Paper. Washington, D.C.: Economic Policy Institute. Tonelson, Alan (2000) “Race to the Bottom” New York, N.Y.: Westview Press, p. 47. U.S. Trade Deficit Review Commission (2000) “The U.S. Trade Deficit: Causes, Consequences, and Recommendations for Action.” Washington, D.C.: U.S. Trade Deficit Review Commission. p. 110-118 William H. Holley, Kenneth M. Jennings, Roger S. Wolters (July 8, 2004) “The Labor Relations Process” Publisher: South-Western College Pub; 8 edition, ISBN: 0324200145. Read More